The Organization of Petroleum Exporting Countries or OPEC, has had a say in global oil policies and prices ever since its inception in 1960. The organization is home to the biggest petroleum producing countries and until recently it had immense power in determining just how much one barrel of crude would cost and the effects said the price would have on the cost of gasoline, oil, plastic, and many other products derived from petroleum. If you take a close look at the previous sentence, you will notice that the keywords are “until recently”. That’s right, the OPEC has lost some of its firm grip on its power to influence the price of oil. Some of it is the organizations own doing whereas other factors come from external sources. Suzzanne Uhland has written about the OPEC’s dealings and how it influences the oil industry. Today, it’s time to cover some of the threats the petroleum exporting organization is facing which could very well lead to a total loss of power if measures are not taken.
1 . Clean energy
Remember way back when televisions were bulky and only displayed black and white images that they used to show what the world of tomorrow would be like. They painted a picture where cars would fly and houses would run on solar energy. The oil industry mocked this notion. Guess what, it’s 2017 and though cars don’t fly they do run on clean energy. Elon Musk and his Tesla brand automobiles have completely changed the automobile industry. So much, as a matter of fact, that one of the biggest automotive producers in the world, General Motors, announced that it will stop producing gasoline-powered cars and opt instead for an all-electric car future. That decision was just the latest in a steady list of moves by different automobile manufacturers towards electric cars and clean energy. What does it spell for the oil industry? A huge drop in demand. The less number of gas-powered cars that are on the road, especially in the United States, the lower the demand for oil. The result will surely be a considerable drop in oil prices as electric cars and clean energy become more popular.
2 . American shale oil
The next biggest threat to OPEC comes from Uncle Sam. A couple of years ago, OPEC members came to an agreement where they would halt the output of oil enough to help prices rise to where they could make significant progress. What the organization didn’t count on was that American shale oil production would hit landmark numbers in both production and costs. Thanks to advances in drilling technology and fracking, the American oil industry was able to tap wells in Dakota and Texas for record low costs and with record highs in production. In other words, the United States was able to drastically reduce its dependence on foreign oil and increase its reserves at the same time. By not selling as much to one of its biggest customers, OPEC will have a hard time getting prices back up.
3 . OPEC itself
Surprised? Don’t be. The final threat to OPEC is the organization itself. For years, it has been somewhat arrogant when it comes to their perception of how much power they have in the industry. It was this petulance which led the organization to not consider the potential of the American shale industry. If that weren’t enough, OPEC has not had good results with the decisions they made. Their efforts to boost oil prices by agreeing to cut over one-million barrels of production daily didn’t live up to expectations. As a matter of fact, there wasn’t any significant shift in the price of oil. If they want to overcome the current crisis, the member states will have to sit down and come to an agreement where everyone is all in, unlike the current agreement where Nigeria and Libya didn’t have to halt production.
The OPEC as an organization could be coming to an end if they succumb to the current threats they are facing and they don’t take serious measures towards making sure that everyone is on the same page. This means that the organization must be humble and take stock of what it has done wrong so far. Additionally, they must start taking the American oil industry seriously and analyze how to counter what the shale industry is doing. Finally, OPEC may want to consider initiating business with industries besides the automobile industry, given the impact electric cars are having on oil prices. As environmental awareness becomes more mainstream and it turns into a way of life, the demand for automobiles which run on gasoline will decrease. There is a lot on the line for OPEC at the moment, the decisions the members make in the coming months and in the short term will have a profound impact on the organization’s survival and its perspectives for the future.
* Featured Image courtesy of Mike at Pexels.com